Sulaiman Al Fahim launched his bid for Portsmouth last week amid investor concerns about the viability of his Dubai property project. Hydra Village, the flagship 2500-villa development of Fahim's Hydra Properties, was due for completion this year but will not now be delivered for another two years due to what the company says are "changes to the masterplan".

Deteriorating relations between purchasers of off-plan properties and the company reached a head when legal notices were sent to those investors who the company claimed had defaulted on scheduled payments.

A Facebook group of disgruntled purchasers, Hydra Investors Group, has been set up and one told the Observer: "Virtually nothing has been started on site. Indeed, only around 40 villas have been half constructed near the road to give the illusion of progress."

The dispute led to talks between investors and the developer's senior executives 10 days ago. According to the website arabianbusiness.com, which first carried the news of Al Fahim's interest in Portsmouth, the second meeting ended in turmoil as four investors were thrown off the premises under the orders of Hydra's commercial director, Ahmed Khalil.

Separate meetings have been held in person with Al Fahim, with Karl Howard, the co-chair of Hydra Investors Group, quoted as saying: "The issue we are facing is investor confidence about the company situation and how much progress they have made. If they could give people that assurance it would be built and the contract wasn't so one sided, then the problems would largely go away."

But in his book, Brand Builder, Al Fahim sets out clearly that he has devised a business model where the risk resides entirely with the customer: "I want to build a US$100m residential development. I sell all the units long before I have started building it.

"My investors begin with a 10% down-payment and, if I do my sums correctly, that gives me US$10m. I give that to the contractor who begins his work.

"After he finishes the first phase, my investors owe me another 10% – another US$10m – which I happen to owe the contractor again, and effectively pass this money straight on to him.

"In some ways, with this your return on equity is infinite because you don't even pay for the land. I call it IRR – ­infinite rate of return. This is the dream scenario, but it will not last forever because you will not always have a market with huge demand and short supply. These kind of markets are very hard to find.

"The liability is with the customer in this scenario."

Certainly the huge-demand-short-supply market has not lasted forever in Dubai. Durham University's expert on the Gulf region, Chris Davidson, who is the author of the book Dubai: The ­Vulnerability of Success, said yesterday that Dubai was a "bubble that has burst".

"Many foreign investors are not shying away from lawsuits any more because they are not worried about not working in the Gulf any more, they just want to get their money out," said Davidson. "The suspicions that in many cases the ­developers have been running Ponzi schemes [whereby new investors' money is used to generate returns for existing customers] have been confirmed to me."

There is no suggestion that Hydra is operating a Ponzi scheme, but if other small developers have indeed been guilty of doing so it has placed heavy downward pressure on demand for property in Dubai.

On announcing his interest in ­Portsmouth on Wednesday, Al Fahim was asked about perceptions that Hydra is experiencing money difficulties and offered reassurance. "The world is in difficult economic times, and some ­people apparently resort to all sorts of badmouthing," he said. "Hydra is a resilient and solid company. And even though we – like the other companies in the UAE and around the world– are facing challenging times due to the real estate recession, I have a strong team assisting me as the CEO of the company.

"However, let me be very clear in saying that my involvement in ­Portsmouth has nothing to do with Hydra. The money for the Portsmouth Football Club acquisition and the needed future investment has been raised through the network of Falcon Equity from Asian and Middle Eastern investors. None of these investors are from the real estate sector or part of a royal family."